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We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for KVH Industries (NASDAQ:KVHI) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
View our latest analysis for KVH Industries
How Long Is KVH Industries' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When KVH Industries last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth US$50m. In the last year, its cash burn was US$20m. That means it had a cash runway of about 2.5 years as of September 2024. Notably, however, the one analyst we see covering the stock thinks that KVH Industries will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. The image below shows how its cash balance has been changing over the last few years.
How Well Is KVH Industries Growing?
One thing for shareholders to keep front in mind is that KVH Industries increased its cash burn by 573% in the last twelve months. As if that's not bad enough, the operating revenue also dropped by 13%, making us very wary indeed. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Easily Can KVH Industries Raise Cash?
Even though it seems like KVH Industries is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.